Bullseye! The Power Of Target’s Fulfillment Strategy

It’s been five years since the discount retailer took back control of its digital commerce operations from Amazon.com, and now Target is taking aim to become one of the true leaders of ecommerce.

Back in 2010, Target spent roughly $2 billion building new stores and remodeling existing ones. Last year, Target spent a similar amount ($2.1 billion) on capital projects, but with the big difference being that just under one half ($1 billion) was plunged straight into strengthening its digital commerce capacity. This is real life testimony as to just how much spending actually takes place – even in a chain that’s perhaps most famous for its bricks and mortar successes – online.

But how did this money get spent, and in what areas specifically did Target target for improvement?

Target’s E-commerce Order Fulfillment Strategy

The challenge for Target’s ecommerce successes relies on its ability to compete with the likes of Amazon.com, and, perhaps more specifically, other giant retail chains like Walmart which are also utilizing capital to step up their digital services.

The solution, Target has found, lies in making better, multipurpose use of what it already has in abundance – bricks and mortar stores.

Let’s get into some figures here.

About 25% (460) of Target’s 1,800 stores now have online order fulfillment capacity. According to Target CEO Brian Cornell, speaking at The Executives’ Club of Chicago, these stores handled 30% of the retailer’s total ecommerce sales last year, and 50% of online electronics orders in Q4 2015.

These Target stores with added fulfillment capacity can ship online orders to customers’ addresses nationwide within two days. This, as Cornell notes, is what enables Target to compete with its ecommerce rivals without having to build numerous brand new distribution centers.

“I have 1,800 mini warehouses across the country,” Cornell said. “460 feature backrooms converted into online order fulfillment centers. Employees who are cross-trained to work the sales floor and the backrooms pick online orders from stores’ shelves or inventory and pack them at the store. UPS picks up the orders and delivers them to hub-and-spoke distribution centers.”

As testimony to the strategy’s success, Cornell confirmed that Target will be expanding the number of stores that will integrate fulfillment capacity, though he didn’t mention just how many upgrades were on the agenda.

Improvements Must Be Made

By its own admissions, Target’s IT systems aren’t quite yet at the level they need to be to meet its ambitions. One of the problems is tracking inventory – Target employees carry tablets around with them in-store to help customers look up products. Unfortunately, the information that these devices carry haven’t always matched up with what’s in stock and what’s available to order.

“We got some of the fundamentals right,” chief information officer Mike McNamara told a group of reporters ahead of Target’s national fall meeting in its hometown of Minneapolis last year. “I want the (IT) systems more stable – they don’t work all the time.”

In response, Target has launched what it calls an “Available to Promise” program that guarantees order fulfillment within a much narrower delivery time window. This is enabled by things like tags embedded into a product’s packaging that help the retailer keep track of the location of a given item. Knowing exactly where stock is located is essential for fulfilling orders that are placed online to be delivered nationwide – it’s no good if a customer orders a pair of size 15 men’s trainers that are advertised as in stock, but they simply can’t be found amongst the 460 stores-come-warehouses to ship out.

“Stock accuracy is so important when you are making a promise to someone remotely,” said McNamara. It is also a big priority for Cornell who wants to radically improve Target’s out-of-stock rates.

Part of the Available to Promise program also means that customers will receive an email notifying them when a package is due to arrive within a much narrower time frame window, thusly removing uncertainty of delivery of online orders.

“We believe this capability will drive further increases in digital conversion rates, which are already improving rapidly, as guests respond to a faster and firmer delivery commitment,” Cornell told Wall Street analysts.

More Stores Mean More Fulfillment

It’s certainly refreshing to observe Target’s candor as it continues to acknowledge, address and ultimately improve upon some of the challenges that the retailer has faced as it ups its armory in the increasingly heated ecommerce war. And there’s certainly more to come. Target will be opening a number of smaller, urban stores measuring 20,000-40,000 square feet (as compared to its traditional 140,000 square-foot stores), which will be built with the intention to act as yet more fulfillment centers for online orders, whilst also serving as regular stores for customers to come in, shop, and/or pick up ordered items in-store.

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About John Waldron: John Waldron is a technology and business writer for markITwrite digital content agency, based in Cornwall, UK. He writes regularly across all aspects of marketing and tech, including SEO, social media, FinTech, IoT, apps and software development.